Satellite TV at heart of Liberty split

Entertainment unit to become a standalone entity

NEW YORK -- John Malone's Liberty Media will split off its Liberty Entertainment unit into a standalone entity in a move that will make it easier for the separate company to acquire full control of DirecTV.

It also will put the spotlight on Liberty Entertainment as a company with content and distribution power and position it for possible further content acquisitions.

Liberty Media said Wednesday that its board has authorized the split-off of Liberty Entertainment, which is a tracking stock of the holding firm.

Tracking stocks, which have become less popular, give investors an opportunity to track the performance and own a stake in a certain business that is part of a larger entity. The planned split-off, however, will make Liberty Entertainment a separately traded company.

Malone has used tracking stocks, such as Liberty Interactive and Liberty Entertainment, as well as split-offs, as in the case of Liberty Global and Discovery Holding. His team's goal has been to narrow discounts in valuation compared with the underlying value of key assets.

"Converting the Liberty Entertainment tracking stock to an asset-backed security will create a stronger currency and allow greater flexibility to pursue our strategic objectives," Liberty president and CEO Greg Maffei said.

Liberty Entertainment houses an approximately 50% stake in DirecTV; Starz Entertainment; 50% of cable channel GSN; regional sports networks; online casual games firm Fun Technologies; and a 37% stake in satellite broadband provider WildBlue Communications.

Liberty Media said its executive officers also will serve as the executives of Liberty Entertainment.

Wall Street observers expect that Liberty Entertainment will be a separately traded firm in about six months and will then take full control of DirecTV, which also is publicly traded, via a reverse merger.

Wall Street folks have suggested Malone would offer only a small price premium for DirecTV if he acquired 100% of it. But Collins Stewart analyst Tom Eagan said Wednesday: "We would expect Liberty would have to offer some premium in exchange for Mr. Malone to receive super-voting shares" in such a merged entity.

Eagan also believes Malone already has one eye on a sale of DirecTV to telecom giant AT&T down the line "given lackluster second-quarter (telecom) land-line results."

More immediately, the Liberty Entertainment split should help boost the valuation Wall Street puts on its assets. Liberty's current valuation "implies that the company's DirecTV stake is trading at about a 10% discount to fair market value," Lehman Bros. analyst Vijay Jayant said.